Steven Cameron, pensions director at Aegon, comments that so far, decumulation customers are mostly investing in the same vein as in their accumulation stage, whether they are in drawdown or not.
He notes: “So far, customers are investing in much the same assets as they were investing in while saving for retirement, and are only dialling down the risk slightly”.
The average breakdown for those entering drawdown is as follows:
Multi-asset strategies – 45 per cent.
Equity growth – 18 per cent.
Bonds – 15 per cent.
Equity income – 12 per cent.
According to Mr Cameron, this is broadly mirrored by the strategies employed by non-drawdown investors:
Multi-asset strategies – 46 per cent.
Equity growth – 24 per cent.
Bonds – 12 per cent.
Equity income – 8 per cent.
For him, this is a worry. “This isn’t a particularly mature market,” he says. “We expect to see advisers and their clients increasingly tailor their investment approach to reflect the requirement for low-risk, regular income.”
Sipp, Ssas, drawdown and transfer
It is worth making the point here that not all pension clients have rushed to drawdown.
Femi Folorunso, senior consultant at Mattioli Woods, comments: “Clients within our self-invested personal pensions (Sipp) and small, self-administered schemes (Ssas) have not suddenly rushed to request a full flexi-access drawdown of their pension income.”
According to Mr Folorunso, the impact of the pension freedoms has been “low key”, with only a handful of clients using flexi drawdown where the “flexibility of access to liquidity is required, above annual sustainable drawdown limits – to meet life expenses”.
He says the firm is also finding that some clients with defined benefit schemes have been approaching Mattioli Woods to review the feasibility of transferring into a defined contribution scheme.
However, he adds: “The rationale for giving up a guaranteed income from a final salary has to stack up in terms of a client’s specific circumstances, and cannot be based solely on managing income in retirement.”
The great unknown
Another concern flagged by the FCA is the lack of knowledge, information and advice being sought by consumers before heading into drawdown.
The FCA report also states: “Many consumers buy drawdown without advice but may need further protection to manage their drawdown effectively. The proportion of drawdown bought without advice has risen from 5 per cent before the freedoms to 30 per cent now.
“Drawdown is complex and consumers need to manage longevity and investment risks by choosing appropriate investment and withdrawal strategies. There is a question about whether further support and protection is needed to manage drawdown effectively.”
William Burrows, retirement director for Better Retirement, comments: “It is true to say drawdown is the new default, since annuities are out of favour at the moment.
“Many people have taken the tax-free cash and some people do not understand that they have moved into drawdown.
